Iran is aiming to cut prices and increase oil exports when sanctions are lifted early next year.
Illustration of pump-jacks on oil field at sunset
The price of oil is plummeting Photo: Alamy
By John Ficenec
Brent crude moved sharply lower on the first days trading after Christmas as Iran vowed to cut prices and boost production in a global market that is already swamped by oversupply.
The price of oil due for delivery in February fell $1.23, or 3.2pc, to $36.66 and was once again heading towards the 11-year low of $36.04 reached last week.
The weak trading came as Iranian oil minister Bijan Namdar Zanganeh pledged to cut prices to bring exports back to pre-sanction levels, according to the Iranian state news agency the IRNA.
Iran controls the fourth largest reserves of oil in the world and aims to increase exports by 500,000 barrels a day within weeks of sanctions being lifted early next year, rising to an additioanl 1m barrels months later.
Iran was regularly exporting 2.5m barrels a day before US sanctions imposed at the end of 2011 saw exports drop below 1m.
The glut of oil around the world was made worse earlier this month when the US Congress reached a landmark decision to end a 40-year ban on oil exports that was put in place when the 1979 oil crisis threatened runaway inflation.
The return of US exports has erased the premium that Brent crude - a global pricing benchmark comprising crude from 15 North Sea fields - has held over West Texas Intermediate (WTI) for the past five years.
The price of oil in the US, or WTI crude, fell $1.37, or 3.6pc, to $36.74 per barrel in New York exchanges.
The recent bout of weakness in commodity prices has also been partly due to the US Federal Reserve deciding to raise interest rates for the first time in nine years last week. Higher interest rates have caused the US dollar to strengthen as a currency.
The strength of the US dollar has also hit oil prices hard. Because most commodities are freely traded in international markets, commodity prices are quoted in US dollars. When the dollar rises they become more expensive and this hits demand.
The price of oil has faced further pressure after an Opec meeting at the start of December, when the cartel of oil producers decided not to cut production.
Saudi Arabia is determined to push the oil market to its limits in order to defend its market share, which has come under threat from increased production from Russia, Iran and, more recently, US shale.